Tuesday, July 1, 2008

AM Fraser: SPH

SPH ($4.28) – Falls to low end of $4.20-60 trading band seen as opportunity to accumulate as long term 10-year support around $4-$4.20 signals a buy

Target price $4.50-60
Support $4.10-20

It is a marvel to know how under-performing SPH when we consider that its 1998 high was $3.93 and 10 years later it is hardly above water if we compare with this year’s $4.09 low.

Thus it is not surprising that patient traders would accumulate the stock whenever it drops to near $4.20 which is at the low end of its past 4 years’ trading range.

It may be hard to believe that when STI bottomed out at 1205 in March 2003, SPH had reached a high of $3.82 that month and when the new STI peaked at 3831 last Oct, SPH’s high was only $4.64, a gain of a mere 21% compared to 218% for the index.

It is thus hardly surprising that the counter has fallen out of traders’ radar screens but there are still some trading chances especially after a prolonged downtrend which has just been seen.

The price has fallen to its lowest level last week ($4.21) since its early April year’s high of $4.64 which matched the Jan 22 close of $4.21 when SPH hit intra-day low of $4.09 (STI also hit first support around 2860-70 that day). Underpinning this low is the 2007 low of $4.06.

With so obvious historical support around $4-$4.20, traders who have remembered this stock stuck around $4.40-60 for much of the time since late2006, would have the courage to accumulate around current levels as the chances of a return to this higher band are good.

After all SPH is still an index heavyweight with a market cap of $6.8b and attractive dividend yield of about 6% and trading around market PE of 13-14x with lots of loyal long term shareholders.

It should be relatively resilient to a market selldown based on its sluggish 10-year track record, which suggests the absence of stale bull positions.

The short term technical picture shows the daily MACD beginning to improve and the Bollinger bands suggest it is unlikely to break $4.20 support. In fact the 2-month sideways pattern should have ended and SPH moves back to its traditional $4.40-60 range.

Sgbluechip says: I have analysed SPH’s past 10 years’ dividend payout and dividend growth rate. For the past 10 years, the dividend growth rates range from -53.3% to 172.7% (YOY). The mean growth rate for past 10 years is about 15%, 10% for the past 5 years. The lowest dividend payout was $0.08 (1997, split adjusted), highest was $0.30 (2000, split adjusted). The past 10 years’ dividend payout has amounted to $2.33.

If you had bought SPH in 1997 at a price of $4.00 and sold it at $4.45 immediately after getting this year’s $0.08 dividend, your total gain will be 58.2%(dividends)+11.25%(capital gains) = 69.45%

I believe dividend growth will slow down to about 5% annually. Hence, the dividend payout for FY 2008 for SPH is estimated to be $0.28 or a minimum of $0.27.

I will continue to pick up SPH when it hits $4.20.

1 comment:

jeflin said...

$4.20 and below is an attractive price. SPH possess competitive advantage and is not much affected by economic downturns.

Jeff
http://jeflin.net